PRE-MONEY VALUATION
What is Pre-Money Valuation? The term “Pre-Money Valuation” means the value the entrepreneur assigned to his or her company before seeking our investment. For example, you may believe your company is worth $1.5 million before you accept additional investment funds.
What is Post-Money Valuation? The term “Post-Money Valuation” means the value of the company immediately after the investors put in their money. For example, if the pre-money valuation is $1.5 million and the investors invest $.5 million then the post-money valuation will be $2.0 million figured as follows:
Pre-money valuation $1,500,000
Plus investment $500,000
Equals post-money valuation $2,000,000
How do you figure percentage interest? These numbers are used to determine the percentage interest the investors receive in the business. In the above example, the valuation after the investment is $2,000,000 and the investors contributed $500,000 to that value. Therefore, they will receive 25% of the stock.
What pre-money valuations will we consider? Your valuation must fit within our risk/reward expectations for the investment. Typically, we look for pre-money valuations well below $2 million. It takes unusual situations (e.g., a company with existing revenues, issued patents and demonstrated growth) to get us to consider a pre-money valuation higher than $2 million.
Full-dilution. In determining valuation we take into account the effect of all commitments to issue shares, which is called the “fully-diluted” number of shares. More specifically, the fully-diluted number of shares includes all shares that you would issue if all unconditional and contingent commitments to issue shares were to be given effect (e.g., exercise of options and warrants, conversion of preferred shares, exchange of debt for equity, etc.). Moreover, we expect a reasonable number of shares to be already reserved (and counted as part of full-dilution) for filling out the key management slots and for other employee stock options.
What does all this mean? Your early stage investors will typically own 20-40% of the company after their investment.
I don’t know what my company is worth. Can someone help me? Betti Newburn, Director of the Idaho Small Business Development Center is available for no-cost consulting with you about valuation. You can make an appointment to visit with her at 208-426-3875.
Revised November 4, 2012
What is Pre-Money Valuation? The term “Pre-Money Valuation” means the value the entrepreneur assigned to his or her company before seeking our investment. For example, you may believe your company is worth $1.5 million before you accept additional investment funds.
What is Post-Money Valuation? The term “Post-Money Valuation” means the value of the company immediately after the investors put in their money. For example, if the pre-money valuation is $1.5 million and the investors invest $.5 million then the post-money valuation will be $2.0 million figured as follows:
Pre-money valuation $1,500,000
Plus investment $500,000
Equals post-money valuation $2,000,000
How do you figure percentage interest? These numbers are used to determine the percentage interest the investors receive in the business. In the above example, the valuation after the investment is $2,000,000 and the investors contributed $500,000 to that value. Therefore, they will receive 25% of the stock.
What pre-money valuations will we consider? Your valuation must fit within our risk/reward expectations for the investment. Typically, we look for pre-money valuations well below $2 million. It takes unusual situations (e.g., a company with existing revenues, issued patents and demonstrated growth) to get us to consider a pre-money valuation higher than $2 million.
Full-dilution. In determining valuation we take into account the effect of all commitments to issue shares, which is called the “fully-diluted” number of shares. More specifically, the fully-diluted number of shares includes all shares that you would issue if all unconditional and contingent commitments to issue shares were to be given effect (e.g., exercise of options and warrants, conversion of preferred shares, exchange of debt for equity, etc.). Moreover, we expect a reasonable number of shares to be already reserved (and counted as part of full-dilution) for filling out the key management slots and for other employee stock options.
What does all this mean? Your early stage investors will typically own 20-40% of the company after their investment.
I don’t know what my company is worth. Can someone help me? Betti Newburn, Director of the Idaho Small Business Development Center is available for no-cost consulting with you about valuation. You can make an appointment to visit with her at 208-426-3875.
Revised November 4, 2012
